Bovespa Rises on Signal Interest Rates to Stay at Record Low

By Denyse Godoy and Ney Hayashi -
Jan 17, 2013

The Bovespa index rose after
Brazil’s central bank signaled that borrowing costs will remain
at a record low this year even as inflation exceeds targets.

Homebuilder PDG Realty SA led gains among companies that
sell in the domestic market. Cia. Siderurgica Nacional (CSNA3) SA
slumped to its lowest price of the month, posting the biggest
decline on the index, after Dow Jones reported it offered to pay
$3.8 billion for ThyssenKrupp AG’s plants in the Americas.

The Bovespa advanced 0.2 percent to 61,899.71 at 10:49 a.m.
in Sao Paulo. The real strengthened 0.1 percent to 2.0410 per
dollar after the central bank board kept the benchmark interest
rate at 7.25 percent for a second straight meeting yesterday,
matching the forecast of all 56 analysts surveyed by Bloomberg.
The best strategy is to keep monetary conditions unchanged for a
“prolonged period,” policy makers said in a statement
accompanying the unanimous decision.

“Lower rates should specially favor companies that depend
on credit to sell,” Felipe Rocha, an analyst at brokerage Omar
Camargo, said by phone from Curitiba, Brazil. “Investors
understand that the central bank is concerned about inflation
and wonder what else it could do to try to boost growth.”

Inflation exceeded economists’ estimate for the sixth
straight month in December, ending the year at 5.84 percent,
higher than the bank’s 4.5 percent target for the 28th straight
month. Brazil’s gross domestic product expanded 1 percent in
2012, according to the median estimate of 30 economists surveyed
by Bloomberg. That’s about half the pace of the U.S. and Japan,
according to separate surveys.

Bull market

The Bovespa (IBOV) entered a bull market on Jan. 3 after rising 21
percent from last year’s low on June 5 as stimulus from central
banks around the world eased concern that economic growth might
miss expectations while borrowing costs at a record low in
Brazil boosted equity demand. The index has since pared its gain
to 18 percent.

Brazil’s benchmark equity gauge trades at 11.5 times
analysts’ earnings estimates for the next four quarters,
compared with 10.9 for MSCI’s measure of 21 developing nations’
equities, data compiled by Bloomberg show.

Trading volume was 5.77 billion reais in stocks in Sao
Paulo yesterday, which compares with a daily average of 7.25
billion reais in 2012, according to data compiled by the
exchange.